The Court of Appeal, First Appellate District, recently held that ideas can be subject to trade secret protection; and, in so doing the court gave a primer on the law of trade secrets. In a modern day David and Goliath contest, in Altavion, Inc. v. Konica Minolta Systems Laboratory, Inc. (2014) 226 Cal.App.4th 26, ptn. for hearing pending, Altavion, Inc. sued Konica Minolta Systems Laboratory, Inc. (KMSL) for infringing upon Altavion’s trade secrets involving Altavion’s digital stamping Technology (DST). DST is a process that allows creation of self-authenticating documents through the use of encrypted bar codes. DST would allow revelation of whether the original document had been altered.
The crux of the facts are that Altavion approached KMSL under a non-disclosure agreement to discuss use and marketing of Altavion’s DST technology. After negotiations failed, Altavion learned that KMSL had filed for patents encompassing the DTS. Following a bench trial, the superior court entered judgment for Altavion in the amount of $1 million in damages, $513,400 in prejudgment interest and $3.3 million in attorney’s fees.
KMSL argued, among other things, that Altavion’s DTS technology was simply an idea that was not protectable as a trade secret. The Court of Appeal rejected this assertion: “In conclusion, it is clear that if a patentable idea is kept secret, the idea itself can constitute information protected by trade secret law. In that situation, trade secret law protects the inventor’s right to control the dissemination of information . . . – the information” being the idea itself – rather than the subsequent use of the novel technology which is protected by patent law. . . . In other words, trade secret law may be used to sanction the misappropriation of an idea the plaintiff kept secret.” Even if the idea might be legitimately reversed engineered once it is brought to market, until it is brought to market or otherwise revealed, it is a protectable trade secret, assuming it has value and had otherwise been kept confidential.
The case merits a couple of additional notes.
The court stated that even if some or all of the elements of Altavion’s design were in the public domain and thus unprotectable, the combination was a protectable trade secret if it was secret and had independent economic value.
Observing an increasing trend of reliance upon trade secrets rather than patents, the court observed, “as a leading scholar has observed, because a ‘substantial number of patents’ are invalidated by the courts, resulting in disclosure of an invention to competitors with no benefit, ‘many businesses now elect to protect commercially valuable information through reliance upon the state law of trade secret protection.’”
The court rendered an extensive analysis of the pretrial disclosure requirements (“reasonable particularity” ) of the patents at issue pursuant to section 2019.210 of the Code of Civil Procedure.